Interview with Fastmarkets AMM editor, Thorsten Schier: US coking coal and steel markets 

Published November 2018 by Tatiza Gondim, Marketing Manager, Coaltrans Conferences

 

Why do you enjoy speaking at Coaltrans USA? 

The attendees are all very senior, so you have key decision makers in one room. If you want to get to know and talk to the who’s-who of the global coal markets, this is the place to go. Being a steel specialist focusing on met coal, I learn a tremendous amount about other markets every year as well. The location during the US winter doesn’t hurt!

How will the integrated-minimill ratio in the US develop and how will this impact met coal demand?

Prior to 2018, the picture was of a decline in integrated mill production that uses coking coal as minimills (which are scrap-based) are ramping up value-added flat-rolled steel output. This has traditionally been the stronghold of integrated mills. However, Section 232 has changed the equation somewhat. Tariffs are helping integrated steelmakers’ profitability, and could help them upgrade facilities to be more competitive in future. While still not as profitable as minimills, integrated mills have been reporting better quarterly results and Cliffs Natural Resources, the US sole iron ore supplier, has mentioned strong demand for its pellets from integrated facilities: https://www.amm.com/Article/3839915/Steel/Pellet-crimp-looms-HBI-plant-progresses-Cliffs.html This should bode well for met coal demand domestically.

How is the export picture for US met coal looking right now?

Cyclone Debbie last year resulted in major disruption to Australian supply and triggered buyers in countries such as India to increase their intake of US coal as they became conscious about resource diversification. The US is a swing supplier in the coal market and its exports can be diverted to Asian or European buyers depending on the supply situation of Australia, which is the top exporter. While Asian buyers have started procuring more US-origin coal, it's not always the top choice for them due to freight costs and longer lead times. This year, China also levied a 25% import tariff on US coals amid the trade war with the US. However, China imported just around 2.8 million metric tonnes last year from the US, less than 5% of their overall import volume and therefore the impact of this hasn't been massive. This is also because quality wise, US coals are not very sought after and Chinese buyers find it easy to replace them with domestic or Australian coals.

Could domestic DRI/HBI and pig iron production spur US coal consumption?

There is one more hot-briquetted iron facility coming online in the next few years, being built by Cliffs in Toledo, Ohio. Others have been rumored but not followed through on. They are however unlikely to spur great demand growth for coal, since natural gas as a feedstock is so abundant and cheap. 

What is the outlook for US steel consumption this year?

Consumption overall will likely be up modestly, however, the domestic share of that pie is expected to climb. Imports, traditionally as much as 30% of a market that is typically estimated between 100-120 million short tons of consumption, could be closer to 20% this year given Section 232 tariffs in place. That should help domestic met coal producers, although some facilities have captive supply, so their increases won’t affect the merchant market. 

How have tariffs impacted this picture?

Tariffs have kept out foreign steel, especially of the commodity variety that US steelmakers can produce easily, and have helped them increase prices and profitability. A doubling of tariffs on major steel exporter Turkey has spurred this development, and anti-dumping and countervailing cases are still being filed as well. Downstream sectors are complaining about higher prices that are fully now flowing through the supply chain, so the end of 2018 should be interesting to see how much pushback we’ll see on this front.  

 

You can hear more from Thorsten and his overview on how the steel market and tariffs will impact the US coal market on 31 January 2019 in Miami, as part of the 19th Coaltrans USA.